Will Natural Gas Prices Hold above $2 per MMBtu
The Natural Gas Market Has Fallen for the Fourth Straight Month
Downward trend
Natural gas futures contracts for December delivery were trading just above the key support of $2 per MMBtu (British thermal units in millions) on October 29, 2015. Long-term bearish momentum is dragging natural gas prices to record lows. All of the fundamental drivers are supporting the bearish traders.
Support and resistance
Bearish traders could see support at $2 per MMBtu. Mild winter and rising inventory could drag natural gas prices lower. Prices tested this level in October 2015.
On the other hand, short-covering and bottom fishing could push natural gas prices higher. The next resistance for natural gas prices is seen at $3 per MMBtu. Prices tested this level in April 2015.
December natural gas futures are trading below their 20-day, 50-day, and 100-day moving averages. This suggests weakness in natural gas prices. In contrast, the relative strength index (RSI) suggests that prices are in the oversold territory. This suggests that prices could recover over the short term.
The EIA (U.S. Energy Information Administration) forecasts that gas prices could average around $2.8 per MMBtu in 2015 and $3.1 per MMBtu in 2016.
Natural gas prices could average around $2.85 per MMBtu in 2015 as per estimates from Bank of America Merrill Lynch (BAML). Capital Economics estimates that gas prices could hit $3.50 per MMBtu by the end of 2015 and $4 per MMBtu by the end of 2016.
US natural gas producers such Exco Energy (XCO), Cimarex Energy (XEC), Gulfport Energy (GPOR), and Comstock Resources (CRK) have been impacted by the catastrophic fall in natural gas prices.
These stocks’ natural gas production mixes are more than 49% of their total productions. These stocks account for 5.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
The roller coaster ride in the energy market also affects the Velocity Shares 3x Inverse Natural Gas ETN (DGAZ) and the iShares US Oil Equipment & Services ETF (IEZ).
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